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Best REIT ETFs for Dividends

ETFs that invest in real estate investment trusts are getting a second look from investors as a play on dividends and the multifamily sector that is profiting from rising rents.

The $12.5 billion Vanguard REIT ETF (VNQ - News) is the largest diversified fund that follows the sector. It boasts a razor-thin expense ratio of 0.12%.

The commercial real estate fund is up 15% year to date, compared with a 10.6% gain for the S&P 500, according to Morningstar.

VNQ is yielding about 3%.

Still, investors are wary of real estate investment trusts since they crashed along with the market 2008 and failed to deliver their supposed benefits. However, a desire for income and dividends could bring investors back to this beaten-down sector and REIT ETFs. [ETF Spotlight: REITs]

“What matters isn’t how an asset performed five or ten years ago, but how it’s performing right here, right now. So as uncomfortable and improbable as it might seem, now might be an opportune time to consider adding a position in exchange-traded real estate,” writes Jonathan Hoenig at SmartMoney. “Six years after a government-created real-estate bubble burst, there are signs the asset class is finally coming up for air.”

Josh Brown at The Reformed Broker blog points out that REIT ETFs are breaking out on the charts.

“Real estate, while not improving, is not getting worse for now … and rental properties are on fire,” he wrote.

“REITs are a bit bond-like but have a volatility profile closer to stocks. They are sensitive to scary headlines … but their dividend payouts are not very volatile or sensitive at all unless the headlines translate into actual crisis,” Brown added. “REITs are not really good diversification from stocks — in a rough market, they will act just like stocks — but the yields are a nice compromise for the bond people to crawl out of their hiding spots as it dawns on them that they are being played by the current (and forever) interest rate policy.”